Investing for Beginners: How to Tackle the Stock Market
Blog | September 4th, 2019
Thinking about investing some money and want
to give the market a try? The prospect of investing money in stocks can seem
overwhelming. But, with a little research and patience, nearly anyone can make
money investing in the stock market.
If you are looking to invest, there are two things you absolutely must have: a little bit of money and some patience. Once you get started and pay attention to market fluctuations and economic forecasts, then you can begin to be a bit more impatient with your money.
Investment 101: Getting Started
Getting started is a little daunting because there are so many options available to investors like yourself. Tons of online and brick and mortar brokerages are competing for your business, but which one to choose?
Most beginning investors will begin trading
online. It’s accessible and much less intimidating than meeting in an office
with a broker. Many online brokers offer guides and tips for beginners. Online
brokers are easy to use and provide a convenient way to make money. Below are
some of the more prominent online brokers:
ETrade – one of the oldest and most trusted online brokers. They offer a wide variety of investments for all types of investors.
Ally Invest – a lower-cost alternative to ETrade with minimal commission fees and resources geared towards the beginning investor.
Robinhood – a no-commission online broker with a simple platform and a variety of investment opportunities, including cryptocurrencies.
Yes, robo-advisors are a real thing and are
turning the investment world upside down. As the name suggests, robo-advisors
are online brokers who do all the work of investing for you. When you sign up,
you indicate how much you’d like to spend, how much risk you are willing to
take, and then the robo-advisor takes over.
The benefits of robo-advisors are that they
offer low rates and hands-off management. If you have a couple of thousand
dollars but no time to invest it, then a robo-advisor is your answer. While
some robo-advisors are merely online vehicles for investment, some offer human
resources and highly varied investment options.
Some of the better-known robo-advisors are Betterment and WealthSimple, but there are many more. Think of a robo-advisor as a sort of middle ground between a broker and traditional online investing. You get a basic level of “advice” from the robo-broker, with the convenience of transacting all the business online.
If the online experience doesn’t suit you, then you’ll need to head to your nearest brokerage firm. A stockbroker will act much like a financial advisor while investing your money in one of their products. But, they will also help you map out an overall investing goal that corresponds to your lifestyle and spending habits.
Types of Investments in the Stock
Once you’ve chosen a vehicle for investing, it’s time to learn a little about how the stock market operates. First, most people do not buy stocks of a single company. Most stocks are sold in bundles with various names, such as mutual and index funds.
Most experienced investors will tell you that you need to “diversify your portfolio.” All that means is that you should invest in a wide variety of stocks to minimize losses and maximize your profits. Diversification insulates you from industry-specific downturns that catch investors by surprise. Mutual funds are groups of stocks that are purposely diversified, so you don't need to do the work yourself!
Index funds are groups of stocks, but not as diversified. The S&P 500 and Dow Jones Industrial Average, or “The Dow,” are indexes that are bellwethers for stock market health. You can invest in these indexes.
ETFs are becoming an increasingly popular way
to diversify a portfolio with a single transaction. Similar to mutual funds,
these funds are a bundle of stocks and other securities, such as bonds,
currencies, commodities, and more. They differ from mutual funds in that they
are listed on the stock exchange as a single fund and can be bought and sold
anytime during the day.
Index and mutual funds are often for the long-term. If you want short term, individual stock trading, then be aware that many online brokers charge commission. Etrade, for example, charges a 7$ commission on each trade. Thus, if you buy and sell one stock, you are down an additional $14. ETFs can be a long or short-term investment.
Stock Market Resources
Before you tackle the stock market, you need to crash course in the stock market that only experts can provide. Luckily the internet has a plethora of options when it comes to learning about where, when, and how to invest.
Some well-known websites are set up to help beginning investors make sense of everything, particularly Motley Fool and Morningstar. While Google can tell you the difference between an EFT and an IPO, these websites give industry and company-specific intel that can be useful for both advanced and beginning investors.
If you still don’t completely trust the online
investment experience, then there are other options. You may be forgetting
about the one investment resource right under your nose: your local bank. Your
bank will offer some investment services, and as their customer, you can meet
with one of their investment advisors free of charge.